12 June 2015
Global and Domestic Cosmetic Brands Bid for Market Share via WeChat
With the 20th China Beauty Expo adopting a distinct focus on the way social media and e-commerce are reshaping the marketplace, one channel was receiving universal plaudits for its effectiveness in driving sales – WeChat commerce.
Perhaps belatedly, the mainland cosmetics industry has begun to feel the impact of e-commerce. Fittingly then, the 20th China Beauty Expo took New Trends in Social Media/E-Commerce as it is principal focus. This year, the Shanghai-based event addressed the many changes all-things-digital have brought to every aspect of the cosmetics industry, including products, marketing, sales, channels, distribution and management, with a particular acknowledgment of the importance of the O2O trading model.
Over recent years, e-commerce has entered a new and more mature phase. The convergence of social media and e-commerce, along with related brand activity, has resulted in three developments in the way consumers access online shopping. Firstly, there is the way digital media function as a guide to just what products to buy. Then there is the unilateral and multilateral sharing and interaction between users and vendors. Thirdly – and arguably most significantly – there has been the establishment of a series of multi-tier rebates for sharing posts within social media networks – a clear incentive for customers to become advocates.
There is little doubt that WeChat commerce is currently the most significant channel, with cosmetics and personal care products inevitably gravitating toward it. This has seen increasing number of domestic brands are now signing up for the service.
WeChat commerce represents a new form of e-commerce, one where companies or individuals open shops via its platform. These shops mainly operate in one of two ways – B2C shops using public WeChat accounts and C2C shops operating within circles of friends. As with Taobao, WeChat commerce also has two streams: B2C and C2C. The difference here is that WeChat commerce makes use of its parent platform's ability to connect everything – social sharing, recommendations to close friends and presentation of products to a circle of friends.
Overall business flow via WeChat commerce mainly has four components. Principally, these are Weimob shops on transaction platforms, marketing add-ons, a distribution system and user-to-user sharing and promotion.
According to data from Tencent, the holding company behind WeChat, the platform has 450 million monthly active users, with that number continuing to rise. Explaining the popularity of the system, Zhao Junfeng, General Manager of Fengze Yuanta, a Henan-based entrepreneur's association, said: "Everyone wants to start their own business. WeChat commerce fits in perfectly with those aspirations.
"There are very few restrictions on those looking open WeChat shops. They don't have to rent shop space or stock up on large quantities of goods. All they have to do is to post photos and short product descriptions on WeChat, QQ and other platforms.
"From a sales point of view, WeChat commerce is about 'inner circle' marketing. WeChat's circle of business has a unique advantage. Once trust is established, a business can grow exponentially, expanding at an amazing speed."
For many, the key advantage of WeChat commerce seems to lie in its seamless online-to-offline user acquisition facility. The platform began life as a social networking tool, rather than a marketing tool. As such, it can target user groups more accurately and connect big data more effectively than traditional e-commerce systems. This enables businesses to substantially improve their levels of service and secure more orders.
WeChat commerce represents a form of 'decentralized' e-commerce as far as most companies are concerned. It scores over Taobao, a more PC-focussed system, in a number of ways. Most traditional retailing companies failed to turn a profit via Taobao, largely because of problems with customer acquisition. The problem was aggravated by the fact that users who placed orders on B2C or C2C shops were, in effect, customers of Taobao rather than of the third-party vendors. As a result, such merchants had no direct channels of communications with buyers and could not determine more specific user requirements.
By contrast, WeChat commerce succeeds by allowing vendors to assemble potential customers from a variety of sources in order to form their own Big Data customer database. This facilitates the use of personalized recommendations and more targetted marketing.
As a customer management platform, WeChat eliminates all intermediate stages and ensures unimpeded communication with customers from different channels. Vendors can, thus, establish direct contact with consumers using their public accounts.
According to a number of industry sources the expectation is now that the retail sector will be more or less equally split (3:3:4) between e-commerce, WeChat commerce and traditional retailing. Taobao cannot completely undercut traditional retailing, while neither can WeChat overturn Taobao. As a result, the three channels are expected to coexist for a long time to come. It is predicted that WeChat commerce will account for 30% of retail sales channels in future.
Overall, some four elements are seen as essential for the future growth of B2C WeChat commerce – a sound transaction platform, a social media-driven distribution system, a social media-driven customer relations management system and an adequate after-sales rights protection mechanism.
WeChat and Cosmetics
In terms of specific applications within the beauty sector, Shanghai's Kans Cosmetics claims to have broken through the Rmb100 million marks in terms of monthly turnover, while bringing its number of franchisees to more than 20,000, within just a few months of switching to WeChat marketing. According to Chen Yuxin, Vice-president and General Manager of the company's O2O WeChat marketing department, Kans now aims to achieve an annual turnover of Rmb1.5 billion via WeChat commerce in 2015. As a result of its use of the platform, the Kans' brand went viral and was subsequently able to raise its first-round capital.
With WeChat marketing currently proving so successful, it is no surprise that Elizabeth Arden, one of the world's leading cosmetics brands, has announced plans to utilise the platform. At present, the brand is said to be facing problems with poorly defined positioning within the mainland market, sustaining considerable losses as a result.
With number of domestic cosmetic brands – notably Pechoin and OSM – have already found considerable success via WeChat commerce, Elizabeth Arden launched its marketing campaign on the platform Shanghai on in January this year. It hopes that the initiative will particularly engage younger consumers.
In order to make a distinction between its online and offline channels, Elizabeth Arden has launched products and sets specifically for the WeChat market. Sets sold on WeChat at Rmb698 are priced at more than Rmb2,000 at makeup counters. The company entered China as an upmarket brand and has established its exclusive positioning partly on account of its high prices.
Now, when any of its products fail to find a market via conventional retailing, it turns to its WeChat channel. WeChat marketing became Elizabeth Ardern's primary strategy for success on the mainland market after acquisition moves by Korea's LG foundered last year.
The China Beauty Expo 2015 took place at the Shanghai New International Expo Centre between 19-21 May.
Jennifer Xu, Shanghai Office